When the tech industry and the web took off like a rocket in the 1990s, I was a technology editor at Wired. I listened to dozens of public relations pitches each day, and some of them sounded like they were cribbed right out of a science fiction novel. Of course, that didn’t stop many of the far-fetched startups from listing on the NASDAQ and the New York Stock Exchange, gaining instant credibility and capturing the imagination of impulsive investors and venture capitalists alike, who poured millions of dollars into their valuations.
By the time the dot-com bubble burst in 2002, many of the companies had crashed, burned, and landed in the proverbial ash heap of history. Entrepreneurs and investors learned some hard lessons, and the ensuing reboot relied more on real-world bottom lines and profits than whimsical, wishful projections.
Flash forward twenty years, and now upstart cannabis companies are eager to stake a claim on the public markets. One hitch, though: As long as cannabis remains illegal at the federal level, plant-touching companies are not allowed on U.S. stock exchanges. But maybe that’s not such a bad thing. It could be a blessing the nascent cannabis industry isn’t exposed to the bright lights of major U.S. exchanges, where hype and hysteria can lead to Reddit-meets-Robinhood-meets-GameStop-type debacles. Meanwhile, the Canadian markets welcome cannabis companies with open arms. While these exchanges may not be as prestigious or populated by institutional (read: deep pocket) investors, the Canadian Stock Exchange (CSE) and the Toronto Stock Exchange (TSX) nonetheless have become the biggest platforms in the world for trading cannabis stocks, in addition to over-the-counter (OTC) trades, which bypass the middleman exchanges altogether (so caveat emptor).
If you want to buy into the biggest U.S.-based cannabis companies—multistate operators like Curaleaf, Green Thumb Industries, Cresco Labs, Trulieve, MedMen Enterprises, and Acreage Holdings—the CSE is where you will find them. There are hundreds of smaller companies, too, all fishing for investors that will help them grow, scale, and survive in an increasingly competitive U.S. industry. Hollister Cannabis Co., based in the Central Valley of California, is one of those companies. Carl Saling is the chief executive and co-founder, and as an entrepreneur who has been building businesses since he was in his teens, he understands both the pitfalls and opportunities of listing on a public stock exchange.
“I know the CSE is very bullish on cannabis companies as long as they’re operated properly, so they provided a lot of support and connections, and it’s been great for us,” he said. “But you need to know what you’re getting into. Once you’re public, it opens up the door for a lot more scrutiny, so anybody that owns even one share can ask questions. It’s important to have a system in place to handle that.”
And oh, so many questions! If you have attended a cannabis investment pow-wow or industry conference over the past few years, while you were waiting in line for a CBD-laced coffee you may have overheard a conversation along these lines:
“So, if this reverse merger goes through, will we report our earnings combined with the mining company’s or the software group or both? And what are those guys mining for, anyway?”
“Wait…is the CSE better than the OTC, and why is [fill in the blank] company listed on both?”
“Is the Canadian dollar worth more or less than the American dollar?”
Despite any confusion or questions about how the markets work north of the border, most cannabis companies are grateful the markets exist and are providing much-needed capital and a potential on-ramp to more high-profile markets in the future. The Canadian markets’ appeal for cannabis companies is obvious: The companies can raise money much easier than performing daily dog-and-pony shows to private investors, who will pass on the opportunity approximately 99 percent of the time. Likewise, when stocks begin to mature in public markets, employees and investors have an opportunity to cash out and put some money in the bank. For companies like Hollister Cannabis, the CSE has allowed scaling up, moving into new territories, and dreaming of new horizons when the U.S. legalizes weed at the federal level.
“Early on, we had a lot of individual investors, but now that we’re more established and our revenue is where it is, we have institutional investors coming in and being on a public market enables that,” Saling said. “We liked the CSE because our partner has a track record there, and we also have a sister listing on the OTC. Hopefully, there will eventually be a pathway for us to be on the NASDAQ. That would be amazing.”
For cannabis companies in the U.S., the CSE, TSX, and OTC are something like minor-league baseball: Companies need to prove they can hit the fast ball and the curve ball and be a steady player over the long haul. After companies have proven their worth on the CSE, they will be ready and eager for a bigger stage with brighter lights.
Of course, then there will be even more know-it-all, surly fans in the front row, criticizing every strikeout and miscue. But that’s all part of the game.